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Tuesday, April 28, 2015

we are of the well considered view that the panel of Arbitrators who are experts in the field had considered all the clauses in the contract and also the change in the legislation revising Works Contract Tax from 2% to 4% under the composition scheme before answering the reference. The learned Additional Advocate General appearing for the appellant could not show as to how the view taken by the Arbitral Tribunal and confirmed by the Court below can be said to be beyond the scope of the agreement. It could not also be shown as to how the Tribunal traveled beyond the scope of reference and its jurisdiction. Except contending that the claims are made contrary to the terms of the contract and that the panel of Arbitrators exceeded the jurisdiction, the appellant could not point out any specific terms of the contract which are violated by the Arbitrators while passing the Award. It is not the case of the appellant that the panel of Arbitrators mis-conducted themselves or any part of the Award is contrary to the Public Policy of India. The appellant could not show that the facts were not accurately considered and that there is misreading or mis-appreciation of evidence and improper application of the evidence to the facts. Therefore, the material aspects on record also do not support any of the contentions now raised before this Court. There is nothing on record to show that the approach of the panel of Arbitrators is arbitrary or capricious. On the other hand, we find that the Arbitrators who are experts in the field had considered the issues properly having regard to the terms/clauses of the contract between the parties and the law applicable. The reasons assigned also could not be shown to be faulty. No grounds based on facts, much less, the required statutory grounds were made out and therefore, none of the grounds urged merit consideration. The point is accordingly answered against the appellant. In the result, the Civil Miscellaneous Appeal fails and is, accordingly, dismissed.

THE HONBLE SRI JUSTICE K.C. BHANU AND THE HON'BLE SRI JUSTICE  M. SEETHARAMA                

Civil Miscellaneous Appeal No.238 of 2008

18-03-2015

Managing Director, A.P. Road Development Corporation  And Ex-officio Engineer-
in-Chief (R & B), Errum Manzil, Hyderabad. . Appellan

M/s.IRCON International Limited, Secunderabad and 3 others. Respondents  

Counsel for the appellant:  Additional Advocate General

Counsel for Respondent No.1     : Sri K.Prabhakar
Counsel for Respondent No.2 to 4: None appeared

<Gist :

>Head Note:

? Cases referred:

1.  (2008) 13 SCC 80
2.  2014(13) SCALE 226
3.  2014(9) SCALE 687

THE HONBLE SRI JUSTICE K.C. BHANU      
AND
THE HONBLE SRI JUSTICE M.SEETHARAMA MURTI          

C.M.A.No.238 of 2008

JUDGMENT: (per Honble Sri Justice M. Seetharama Murti)

                This civil miscellaneous appeal filed by the appellant under
Section 37 of the Arbitration & Conciliation Act, 1996 is directed against
the order dated 20.02.2007 passed in OP.No.348 of 2005 by the learned
III Additional Chief Judge, City Civil Court, Hyderabad.
2.              We have heard the submissions of the learned Additional
Advocate General appearing on behalf of the appellant (i.e., the
respondent before the Tribunal) and the learned counsel appearing for
the 1st respondent (i.e., the claimant).  The other respondents herein are
the learned Arbitrators.
3.              The parties in this appeal shall hereinafter be referred to as
the appellant and the claimant for convenience and clarity.
4.              The introductory facts necessary for consideration, in brief,
are as follows: - The claimant and the appellant had entered into an
agreement bearing No.1/1997-98 dated 26.03.1998 for the work of
widening and strengthening of Warangal - Raipatnam Road.  Certain
disputes and differences had arisen between them in respect of the said
work under the said contract. As per the terms agreed to under the
contract, the disputes were first referred to the Disputes Review Board
(the DRB for short).  The DRB had submitted recommendations on
04.02.2003 accepting one of the two claims and rejecting the other.
Having not been satisfied with the recommendations of the DRB, the
appellant had made a request for referring the parties to arbitration.
Simultaneously, the claimant had also expressed its intention to have the
parties referred to arbitration as one of their claims was also rejected by
the DRB.  The claimant had nominated its Arbitrator; and the appellant
had also nominated its Arbitrator.  The said two Arbitrators by mutual
agreement had nominated the third member of the Tribunal as the
Presiding Arbitrator.  Both the parties had submitted their documents
and the same were exhibited.  
5.              The final findings of the Tribunal as confirmed by the Court
below are as follows:  The claim number 1 was allowed and interest was
also awarded on the amount claimed. On claim no.2, which related to
price adjustment of POL due to steep hike in prices, no separate award
was passed as claim no.3 of the second set of disputes covered claim
no.2 of the first set of disputes.  The claim No.3 was stated to have
arisen as a consequence of claim no.1.  The recovery of Rs.19,02,465/-
by the appellant was held not justified and the recovered amount is
directed to be reimbursed to the claimant.  The counter claim was not
considered since withdrawn.
6.              Assailing the orders of the Arbitral Tribunal, the appellant
had preferred an application under Section 34 of the Act.  On merits the
learned Additional Chief Judge had dismissed the said Original Petition
viz., OP.No.348 of 2005 with costs of the claimant/1st respondent herein.
Therefore, the appellant is now before this Court.
7.              The learned Additional Advocate General appearing for the
appellant would contend as follows: - The Panel of Arbitrators had
traveled beyond the reference and the scope of the agreement and had
dealt with the claims, which are beyond the scope of the agreement.
Thus, they had acted in the matter without jurisdiction.  Hence, the
Award is liable to be set aside.  The Tribunal and the Court below have
failed to see that advance works contract tax is to be deducted at 4%
only in view of the change of the legislation.  Therefore, the request of
the claimant for interest on the excess liability of 2% is untenable.  The
court below ought to have found that the Arbitral Tribunal should have
seen that from 1.1.2000 the rates of works contract tax were revised and
the rate of tax under Section 5(G) of the APGST Act was increased to 4%
from 2% and the Department had started recovering at the rate of 4% as
per the revised rates.  The Court below ought to have seen that the
Arbitrators ought to have taken note of the fact that the claimant was
asked by the department/appellant to get the excess liability figures
confirmed by sales tax authorities and that the actual amount to be
refunded is communicated to the Department only on 18.03.2004 and
that the excess liability was refunded to the Contractor on 24.07.2004
i.e., much prior to the passing of the Award. The court below ought to
have seen that the claimant had produced the details/figures of excess
liability through Sales Tax Department only on 18.03.2004 and the same
was certified by the Commercial Taxes department; and as such the
question of paying any interest and award of interest by the Panel of
Arbitrators from 1.1.2000 does not arise.  As per clause 70.1 price
adjustment is to be made based on the indices prevailing at the time of
tendering and those on the date of payment which the Court below had
ignored.  The price escalation is allowed on 85% of the value of the work
done and the balance 15% is not allowed for price escalation as it
comprises profits and overheads, which the Court below had failed to
take note of.  The Court below ought to have held that contract price
includes works Contract Tax also and that amount is deducted from value
of the work done and the price escalation allowed and therefore, any
increase in the liability of the contract tax is being reimbursed to the
claimant under clause 70.8 of the Agreement and therefore, the court
below ought to have held that the original liability of the contractor is to
be deducted from the value of the work done and then the price
escalation allowed and hence, the escalation amount of Rs.19,02,465/- is
not permissible.  The Audit had also pointed out that seignorage charges
have to be deducted before allowing price escalation and therefore, on
the same analogy works contract tax has also been deducted.  The court
below ought to have interfered with the Award which called for
interference.  The court below wrongly placed reliance on the decision in
Oil and Natural and Gas Commission v. SAW Pipes Limited [2003(3) ALD  
82] though the ratio in the precedent is not applicable to the facts of the
case.
8.              On the other hand, the learned counsel for the 1st
respondent/claimant would submit that the Arbitrators have interpreted
the clause in the agreement with respect to escalation and Works
Contract Tax in the light of the provisions under the APGST Act and
applied the law accurately to the facts and that the appellant could not
show that the findings of the learned Arbitrators are contrary to law of
India or that the learned Arbitrators traveled beyond the reference or
the scope of the agreement and that therefore, none of the contentions
raised by the appellant merit consideration and that the well reasoned
order of the court below confirming the award of the Arbitral Tribunal
suffers from no factual and legal infirmities and that no grounds, much
less valid grounds, are made out by the appellant and that therefore, the
same deserves to be confirmed and the appeal, which is devoid of merit,
is liable to be dismissed.
9.               Now the point for determination is as to whether the
appellant had made out valid and sufficient grounds for setting aside the
order of the Court below confirming the Award of the Tribunal?
10.             POINT:
10.             (a)     The introductory facts and the facts leading to the
present stage of the matter are already stated supra, in detail. We have
given earnest consideration to the facts, documentary evidence and the
submissions and we have carefully gone through the cited decisions.
The following precedents were relied upon on the aspect of extent of
judicial intervention or the scope of interference of the Court. (1) Delhi
Development Authority v. R.S.Sharma and Company, New Delhi ;  
(2) Associate Builders v. Delhi Development Authority  and (3)
M/s.Navodaya Mass Entertainment Ltd., v. M/s.J.M.Combines .  The
settled principles for interference with an arbitral award under Section
34(2) of the 1996 Act as per the decision of the Supreme Court in Delhi
Development Authority (1 supra) are as follows:
(a)     An award, which is
(i) contrary to substantive provisions of law; or
(ii) the provisions of the Arbitration and Conciliation Act, 1996 or
(iii) against the terms of the respective contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under Section 34(2) of the Act.
(b)      The award could be set aside if it is contrary to:
(a)     fundamental policy of Indian law; or
(b)     the interest of India; or
(c)     justice or morality.
(c)     The award could also be set aside if it is so unfair and
unreasonable that it shocks the conscience of the court.
(d)  It is open to the court to consider whether the award is against
the specific terms of contract and if so, interfere with it on the
ground that it is patently illegal and opposed to the public policy of
India.

      In the decision in Associate Builders (2nd cited), the Honble
Supreme Court referred to the ratios in various earlier decisions including
the decision 1st cited and further elucidated the law on the point and had
further held that when a Court is applying the public policy test to an
arbitral award, it does not act as a Court of appeal and consequently
errors of fact cannot be corrected and that a possible view by the
Arbitrator on facts has necessarily to pass muster as the Arbitrator is the
ultimate master of the quality and quantity of evidence to be relied upon
when he delivers his arbitral award and thus, an award based on little
evidence or no evidence, which does not measure up in quality to a
trained legal mind would not be held to be invalid on this score and that
once it was found  that the Arbitrators approach is not arbitrary or
capricious then, his word is the last word on facts.
        In the decision in M/s. Navodaya Mass Entertainment Ltd (3rd
cited) the scope of interference of the Court was considered and it was
held that even if two views are possible the view taken by the Arbitrator
would prevail.
10.             (b)     The claim No.1 relates to refund of Work Contract
Tax deducted at enhanced rates.  The relevant factual matrix is as
follows: - The value of the contract is Rs.90,02,29,699/-.  The contract
sub clause 60.1(i) and 60.2 of conditions of Particular Application
stipulate that Advance Works Contract Tax shall be deducted monthly
at the rate of 4% of the value of the payments made.   The claimant
represented and opted for composition of tax as per Section 5(G) of the
APGST Act, which provides for deduction of Works Contract Tax at 2%.
The claimant had obtained permission from the Commercial Tax Officer,
Secunderabad for composition of the tax and for adopting such a
procedure on an year to year basis.  The copies of such permissions were
sent to the appellant from time to time. The scheme for composition of
tax provided for deduction of works contract tax at 2%.  The department
accordingly deducted works contract tax at 2% in accordance with the
approval given by the CTO in regard to payments made up to October
1999.  However, through a subsequent legislation i.e., by notification
dated 31.12.1999 the Government had revised the Works Contract Tax
from 4% to 8% and under section 5(G) from 2% to 4% under the
composition scheme.  Therefore, the department began deducting the
advance works contract tax at 4% from all the payments made after
31.12.1999.  Therefore, placing reliance on sub clause 70.8, the claimant
had contended that the difference on account of enhancement of tax
from 2% to 4% should be added to the contract price and not deducted
from their payments inasmuch as the enhancement had occurred much  
later than the 28 days prior to the latest date of submission of bids
stipulated in the above clause.   The department justified their action on
the ground that sub-clause 60.1 (i), wherein, the deduction of advance
works contract tax at 4% is stipulated, states in the foot note that the
percentages as indicated will be subject to change applicable according
to law from time to time.  Therefore, the department/appellant
contended that the deduction at 4% in the place of 2% hitherto made till
IPC 13 is to be made for all the payments as per clause 60.1 (i).  And
accordingly the department claimed that an amount of Rs.58,06,642/- is
to be recovered from the contractors as per the details in their defence.
Therefore, the department/appellant had made a counter claim for
Rs.58,06,642/-; whereas the claim of the contractor/claimant is that an
excess amount of Rs.1,17,31,766/- has been recovered from them at 4%
instead of at the rate of 2% from IPC 15 to 26, i.e., on the payments
made after 31.12.1999 and consequently, the said amount is due to be
refunded to them.
      On merits, on claim no.1 including the claim for interest, the
Arbitral Tribunal held as under:
Both the parties agreed with the figures furnished by the CTO.
We are, therefore, of the view that on the basis of the
assessment completed by the CTO up to 30.03.2002 an amount of  
Rs.1,26,03,830/- is to be refunded by the appellant to the
claimant being the excess tax collected.  For the further
assessments to be done for the period from 01.04.2002 onwards,
the tax liability for the claimant will be at the rate of 2% only.
The balance 2% on account of subsequent legislation will be
added to the contract price.
The claim arose because the Respondents deducted Works  
Contract Tax at the rate of 4% from 1.1.2000 in place of the
earlier 2% because of change in legislation, instead of adding the
difference on account of change of legislation to the value of the
contract as per C1.No.70.8 of the Agreement.  It was this failure
of the Respondents, in not adhering to the conditions of the
agreement that gave rise to the claim.  As the claimants have
been denied the use of money that they were rightfully entitled
to, they are entitled for the interest on the delayed payment
from the date the amount was due.
Finally, it was held that an amount of Rs.20,68,701.63 paise (claim
limited to the said amount) is to be paid by the appellant to the claimant
towards interest on the delayed excess amount of Works Contract Tax
deducted from the bills.
10.             (c)     During the course of Arbitral proceedings suggestions
were made for settlement of the issue and both the parties had agreed
to try and reach an agreement in regard to claim No.1 and also further
agreed to approach the Tribunal by 15.12.2003 for further action in case
of failure of settlement.  The appellant wanted the claimant to furnish
the break up for the two packages along with certificates of increased
liability separately.  Finally, after protracted efforts from both sides, the
CTO by letter dated 18.03.2004 furnished figures for APSH-I and APSH-III
related to the two projects as the claimants are having one APGST
registration.  The relevant figures were taken into consideration by the
Tribunal.
10.             (d)     The claim No.2 is related to price adjustment of POL
due to steep hike in prices.   The amount claimed under this claim is
Rs.46,14,100/-.  No separate award was passed in respect of this claim as
the award on claim No.3 of the second set of disputes covered claim No.2
of the first set of disputes.
10.             (e)     The claim no.3 is related to reimbursement of
recovered amount of Rs.19,02,465/- from IPC 28 on 24.07.2004.  The
panel of Arbitrators considered the facts accurately and adverted to the
issues which fell for consideration and had recorded the findings to the
following effect: There is no specific provision in the agreement
excluding Works Contract Tax from the escalation calculations. The
counter claim is an after thought and it was put forward after the
submissions of the claimant. The respondents themselves are not
convinced about the validity of audit objections as they have taken up
the matter with the CAG and the same was referred to PAC.  Both the
parties have agreed that only 85% of the value of the work is considered
while computing the R value for price adjustment and the balance 15%
comprises tax.  The CAGs report deals with seigniorage charges.  The
relevant paragraph in the said report related to the said charges was
questioned by the appellant.  Therefore, it was finally held that the
recovered amount of Rs.19,02,465/- from IPC 28 on 24.07.2004 is to be
reimbursed.
10.             (f)     The counter claim was treated as withdrawn by the
appellant.
11.             Thus, on an analytical examination of the award of the
Tribunal which is a reasoned award, we are of the well considered view
that the panel of Arbitrators who are experts in the field had considered
all the clauses in the contract and also the change in the legislation
revising Works Contract Tax from 2% to 4% under the composition
scheme before answering the reference.  The learned Additional
Advocate General appearing for the appellant could not show as to how
the view taken by the Arbitral Tribunal and confirmed by the Court below
can be said to be beyond the scope of the agreement.  It could not also
be shown as to how the Tribunal traveled beyond the scope of reference
and its jurisdiction.  Except contending that the claims are made
contrary to the terms of the contract and that the panel of Arbitrators
exceeded the jurisdiction, the appellant could not point out any specific
terms of the contract which are violated by the Arbitrators while passing
the Award.  It is not the case of the appellant that the panel of
Arbitrators mis-conducted themselves or any part of the Award is
contrary to the Public Policy of India.  The appellant could not show that
the facts were not accurately considered and that there is misreading or
mis-appreciation of evidence and improper application of the evidence to
the facts. Therefore, the material aspects on record also do not support
any of the contentions now raised before this Court.   There is nothing on
record to show that the approach of the panel of Arbitrators is arbitrary
or capricious.  On the other hand, we find that the Arbitrators who are
experts in the field had considered the issues properly having regard to
the terms/clauses of the contract between the parties and the law
applicable.  The reasons assigned also could not be shown to be faulty.
No grounds based on facts, much less, the required statutory grounds
were made out and therefore, none of the grounds urged merit
consideration.  The point is accordingly answered against the appellant.
12.             In the result, the Civil Miscellaneous Appeal fails and is,
accordingly, dismissed.  There shall be no order as to costs.
        Miscellaneous petitions pending, if any, in this appeal, shall stand
closed.

_______________  
K.C. BHANU, J
______________________  
M. SEETHARAMA MURTI, J    
18.03.2015 

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